Black Economic Empowerment Blog

BEE bourse

March 16, 2010

We need to talk about this. It seems as though Russell Loubser's casual comment last week is actually going to happen. There were two articles about this today. It apparently is quite a far way down the line in being developed - we can expect it in September.

South African bourse operator JSE (JSE:JSE) Ltd plans to launch a separate board for black economic empowerment schemes to make trading between black investors more transparent, a spokeswoman said on Tuesday.

South African companies have to meet affirmative action targets on a range of ownerships, employment and procurement as part of the government's drive to give the previously disadvantaged a greater part in the mainstream economy.

Shares issued for ownership deals often need to be held by black people and can only exchange hands between them so companies do not dilute their black economic empowerment credentials.

Local bourse operator JSE Ltd has said the idea behind its mooted
black economic empowerment board originated from clients seeking a
platform to trade shares which form part of empowerment transactions.

"We were approached by a company that wanted to make sure its shares
will be traded in a transparent manner once the mandatory lock-in period
expired," said JSE deputy CEO Nicky Newton-King on Tuesday, declining
to name the firm.

As I said before - I think this is a great idea. That post sparked a fair amount of debate between Mark and myself. But being the natural cynic my reasons for liking it are because it will show up the absolute folly that makes up many BEE deals. And this comes back to the fact that the deal is measured by representativity and not by value - as has often been reiterated often by Mvela's Pine Pienaar.

If the bourse exists so that black people can trade shares between each other then we are going to experience huge problems. I'll list a few

Limiting the potential market means that there will be fewer buyers - and fewer buyers means less demand. No institutional/white or other investor can purchase these shares. Where is the wealth creation here?

The JSE is going to have to set up a system that vets the blackness of share purchasers. And this could lead to litigation or a constitutional challenge. I can only see this as one administrative nightmare.

What would I do

I would open up the shares to the general market after the lock-in clause has passed. Can you imagine if these shares were heavily traded - it would be a major endorsement for BEE. It would tell the market that the black ownership has grown these companies and made their stock attractive to other investors. In fact this could be the one thing that shows that the entire BEE policy was worthwhile in the first place.